Halfords (LON:HFD) has raised its dividend but it may not maintain this for long with profit set to dip further and cash generation limited by the high payment.

The share price has more than halved in the past four years and one of the main attractions is the yield. The total dividend was raised from 18.03p a share to 18.57p a share and both the interim and final were increased.

The automotive and cycling products retailer and autocentres operator reported underlying pre-tax profit of £58.8m, which was in line with the previous trading statement. This was down from £71.6m the previous year.

Store portfolio

There are currently 477 stores and that may be too many. Whatever the correct number is they appear to require a refreshing of the offer and/or format. The online/mobile operations also need to grow.

Today’s analyst meeting was not a happy affair if the Peel Hunt note is anything to go by. Peel Hunt was unhappy that the formal presentation only lasted 15 minutes.

There are plans to reduce capital investment at a time when focused investment is required in order to try and grow revenues.

Cash

Net debt was £6m lower at £81.8m and it is expected to fall further this year. How much it comes down will depend on the level of dividend.

There are analysts that believe the ability to generate cash is a plus. However, that cash generation is partly based on reducing capital investment. That is investment that is likely to be required if Halfords is going to return to growth.

New formats and investment in stores are a way of growing the business. The management is still relatively new, but it will need to come up with a strategy to make Halfords a more attractive prospect.

The latest total dividend will cost nearly £37m. That compares with capital investment of £29.4m last year. A significant fall in net debt would require a reduced dividend payout.

Peel Hunt forecasts a dip in profit to £56.5m in the year to March 2020 and it may not return to the 2018-19 level in the following year.

The share price was unchanged at 239p, which means that the yield is 7.8%. So even if the dividend were halved, the yield would be around 3.9%.

The prospective multiple is just over ten – not high but there is little hope for medium-term growth. Steer clear until there is more of an indication that Halfords is a good investment once again.